California indicts Russian hacker

Feds allege cyber protection racket

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A Russian computer programmer imprisoned in the US on charges that he perpetrated a cyber crime spree of extortion and credit card fraud was indicted in California Wednesday-- adding the Golden State to a growing list of destinations on the accused hacker's whirlwind tour of American detention centers.

Alexey V. Ivanov, 20, was slammed with fifteen counts of computer fraud and extortion for the Southern California portion of a string of financially-motivated attacks on e-commerce companies and small financial institutions, aimed at stealing credit card numbers and consumer information, and strong-arming companies into paying protection money.

The federal indictment charges that Ivanov cracked San Diego-based CTS Network Services, and then used the ISP's system to attack other sites. Other victims named in the indictment are Nara Bank in Los Angeles, TransMark Corporation in Rancho Cucamonga, California, and Maryland-based E-Money, an online credit card processing company.

"Given the importance of computers in everyday life, hackers and cyber-extortionists pose one of the most significant challenges to law enforcement," said United States Attorney John Gordon in a statement.

Credit Card Fraud in Reverse

The indictment also charges that Ivanov "and others" attempted to plunder Sterling Microsystems, an Anaheim, California-based online credit card processing firm. The Sterling scam hinged on a kind of reverse credit card fraud, in which Ivanov and his gang allegedly used Sterling's merchant account to issue credits in amounts ranging from $5,000 to $25,000 to credit cards under their control. The indictment does not allege that the fraud was successful.

In February, 2000, Ivanov also allegedly emailed Sterling, and threatened to damage the company's systems, unless it agreed to hire him as a computer security consultant.

Notwithstanding his alleged propensity for international financial crime, Ivanov appears qualified for IT work: A resume he distributed online in 1999 lists work experience with a Russian ISP and a medical center, and boasts a wide range of computer and networking skills, including "excellent" programming ability in C, C++ and assembly language dating back to when he was thirteen years old.

Ivanov is currently held without bail in Rhode Island. His attorney did not return phone calls.

The Russian will be arranged in Southern California only after dealing with similar charges already pending in Seattle, Washington and New Haven, Connecticut. Given the scope of the alleged scam, and the random geographic distribution of Internet locations, the list of federal prosecutors waiting in line for the accused hacker could grow even longer.

"Double jeopardy prohibits him for being indicted twice for the same offense, but he can be indicted separately for each and every company that he extorted," says former computer crime prosecutor Marc Zwillinger, now an attorney with Kirkland & Ellis. "If he broke into separate computers, those are separate offenses in separate jurisdictions."

Controversial FBI tactics

Ivanov's arrest last November was the result of an elaborate sting operation by the FBI, in which agents used a fake job offer from a phony company -- 'Invita Security, Inc.' -- to lure Ivanov, along with alleged crime partner Vasili Gorchkov, to the US.

Before they were arrested, the two men were invited to log in to their computer in Russia from the 'Invita' offices. Meanwhile, FBI agents secretly monitored their keystrokes, and subsequently used the information to crack the suspects' computer and download its contents over the Internet.

The agents obtained a US search warrant only after cracking the computer and downloading the information, and never contacted Russian law enforcement officials. The tactics raised eyebrows with some computer security experts and attorneys, and the search apparently violates Article 272 of the Russian Criminal Code, which punishes "Unlawful Access to Computer Information" with up to two years in prison. But the federal judge overseeing the Seattle case ruled last month that the downloaded evidence could be used in court, finding that the FBI wasn't subject to Russian law.